Commentary on Political Economy

Thursday, 20 October 2011

From Schumpeter to Steve Jobs - The Endurance of the Entrepreneurial Spirit

This is a continuation of our study of Schumpeter's Concept of Innovation.

We saw in our major piece on “Nietzsche, Schumpeter, Menger” (just search this site using facility provided) how Schumpeter
mis-interprets Weber’s concept of “rationalisation”, mis-taking it for
“scientization” as against “normative conduct”. Schumpeter’s aim in the
‘Theorie der wirtschaftlichen Entwicklung’ is to discover “scientifically” what
he calls “the trans-formation mechanism” (Veranderungs-mechanismus) of the
capitalist economy that allows it to change “form”, “to grow” from its “static
equilibrium” to a new, dif-ferent equilibrium that is reached “dynamically” not
through “external or exogenous shocks” but through “internal forces”. Indeed,
Schumpeter discovers that what is “specific” to the capitalist economy is
precisely this ability “to trans-form” itself, to be the opposite of “static”,
the opposite of “in equilibrium”, but rather to be in a constant state of
“trans-formation”, of “dynamism”, of change and therefore “not-equilibrium” –
to be, in short, in a state of constant “crisis”. The capitalist economy
“destroys” itself by “re-creating” itself, by “re-novating” itself, by
“in-novating” – and it is this process of innovation (Innovationsprozess) and
of “creative destruction” (schopferische Zerstorung) that “characterises”
capitalist development and “growth”.

No “Statik”, then; but constant “Dynamik”. The capitalist
economy can never be described adequately through a “static model” or a
“circular flow”: it does not have a precise and unique “form”, because it is in
a constant state of “trans-formation”, of “crisis”! The capitalist economy
thrives on “crisis”, on “creative destruction”. Its “growth” can never be
understood as a “steady-state” (as in the Cobb-Douglas function) but only as
“trans-crescence”, as “permanent revolution” (Schumpeter knew his Trotszky very
well!). And what Schumpeter describes is exactly this “transformation
mechanism” whereby the “specific difference” of capitalism from other modes of
production is that it “frees” the entrepreneur, both in terms of “availability
of financial resources” and in terms of “availability of material and human
resources”, into constantly revolutionising the process of industrial
production and therefore (!) that of consumption!

NOTE! Schumpeter does not say that capitalism is
trans-formed by “the freedom of consumer choice” (as all the idiotic
hagiographers of a Steve Jobs would have us believe ultimately, that is, he
“knew” what we wanted but did not know we wanted it!). Quite the opposite!
Schumpeter sees from the very start that it is not the “consumer” who decides in
capitalist society: it is instead the “entrepreneur”, the “captain of
industry”. So this is the “peculiarity” of capitalism: - the existence and
empowerment of the “entrepreneurial Spirit” (Unternehmer-geist).

But here the central difficulty of Schumpeter’s entire
schema comes to light: for the problem is that he has not and cannot explain
how what is an entrepreneurial “spirit” can ever be reconciled with what
Schumpeter had meant to identify “scientifically”, that is to say, the
“mechanism (!) of trans-formation” of capitalist industry. The inconsistency
here is as clear as it is insuperable: it is simply a contra-diction to argue
that the specific difference of capitalism is the “scientific-mechanistic”
combination of certain “institutional features” – a “mechanism of
transformation” and an “innovation process” - that enable the emergence of an
entrepreneurial “spirit”. No matter how much or how long we look for “spirit”
in a “mechanism” or in “scientific processes”, we shall quite simply never find
it!! Here Schumpeter’s misinterpretation of Weber is absolutely striking: by
interpreting Weber’s “Rationalisierung” (the secularisation and
“bureaucratisation” of social life under capitalism) as the replacement of
“faith” and “values” with “objective science”, Schumpeter has entirely
forgotten that Weber had always understood capitalism as a “Spirit” (“the
spirit of capitalism”) and that its “organisation” of society was entirely
“political” and subject to “leadership spirit” (leitender Geist) in all spheres
of social life, and predominantly in Politics and in Science (the subject of
his famous lectures on “Politics as Vocation” and “Science as Vocation”).

This entirely “political” basis of Weber’s interpretation
of capitalist society and the rise of the bourgeoisie wholly and totally eludes
and escapes Schumpeter! His own later “prognostication” of the eventual
“obsolescence of the entrepreneur” and consequent “atrophy and decline of
capitalism” is founded on this fundamental misconception of the “motor” of capitalist
industry (the antagonism of the wage relation) and his substitution of it with
a “voluntaristic” entrepreneurial “spirit” that in fact – already! – had been
supplanted by the rise of what he himself called “trustified capitalism” in the
Second Industrial Revolution of the 1870s whose “crisis” he had also correctly
identified! Schumpeter correctly and sharply identifies the “critical
trans-crescence” of capitalist industry and society: he correctly and adroitly
intuits the social expression of “the entrepreneurial Spirit” as a “Will to
Conquer” (in the ‘Theorie’).

But Schumpeter “never” (!) understood the true
social significance, impact and “social origins” of the “entrepreneurial
spirit” which derives its true impetus and strength from the “Will to Conquer”
of the bourgeoisie to command the living labour of workers, and whose real
“necessity” is provided precisely by the impact of this antagonism on the
“profitability” of capitalist investment or “enterprise”!

This is a point of fundamental
importance. Following the recent demise of Apple CEO Steve Jobs, many
commentators and analysts have remarked on the incorrectness of Schumpeter’s
prediction about the “obsolescence and disappearance” of the capitalist
entrepreneur. If by this we understand that the “entrepreneur” as Schumpeter
understood it – as a free-wheeling adventurer or genius capable of “trans-forming”
capitalist industry single-handedly by the sheer might of his “innovative
genius” – then we can safely say that such an “entrepreneur”, such a “captain
of industry” has never existed. But if instead by “entrepreneur” we understand
a “figure” or “personality” that embodies the will to power of the bourgeoisie
to exert and enforce its command over living labour, then clearly the
capitalist “entrepreneur” will live for as long as capitalism is alive! Let us
explain why.

The whole point to “capital” is to realise a “profit”. But
the notion of “profit” is meaningless and without content unless this “profit”
can be re-invested to command fresh living labour for fresh and expanded “profitable”
production. In other words, the sole aim of capital is to accumulate social
resources that can be applied to command more living labour that is formally “free”
– that is to say, that is “exchanged” with its own dead objectified labour! Clearly
therefore capitalist industry is a system for securing the subjugation of
living labour to dead labour by means of the money wage.

What this
entails is that the capitalist has two ways to realise more “profit” from
capitalist production: - either to intensify the exploitation of living labour
(absolute exploitation), or else to introduce new machinery for the
exploitation of living labour (relative exploitation). The fact that this
second method, that we call “relative exploitation”, involves also the
production of new products does not detract from the reality that it is the
capitalist (the entrepreneur) whose Will to Power is projected in the new
technologies and the new products. Nor does it negate the fact that these new
technologies and products must not emancipate workers to such an extent that
they no longer feel compelled “to sell” their living labour to the capitalist
in exchange for their own objectified labour in the “form” of the money wage!

In effect, therefore, Schumpeter was wrong to view the (capitalist)
“entrepreneur” as an economic agent “distinct” from the “capitalist” (by which
he meant the financier) in this “romanticised”, idealistic and “voluntarist”
manner wholly unrealistic and inconsistent with his own aim to discover the “trans-formation
mechanism” of capitalist industry and society.

Quite clearly, by predicting the obsolescence of the
entrepreneurial spirit and therefore – as a consequence ! – the atrophy and
demise of capitalism, Schumpeter was putting the cart before the horse, that is
to say, he was confusing the cause with the effect! Because it is capitalist industry that requires the command over living
labour personified by the capitalist entrepreneur, rather than the capitalist entrepreneur who as “entrepreneur” constitutes the essence of capitalism!

Differently put, we can say that it is not "the entrepreneur" that defines capitalism: rather, it is the wage relation, the essential social relation of production of capitalism, that cannot exist without the "entrepreneurial function" - without "the capitalist"! It is the need for the capitalist to realise a "profit" that forces him to become an "entrepreneur"; it is certainly not the need to be "entrepreneurial" that turns a capitalist into an "entrepreneur"! Only the demise of capitalism will usher in the extinction of the entrepreneur - but as long as capitalism survives, so will the "entrepreneurial spirit"!